CONNECTING RESEARCH AND POLICY FOR BETTER LAND MANAGEMENT

January 2016 - Natural Capital Accounting

Natural Capital Accounting – Examining the Valuation of Agricultural Land, Stocks and Flows in Alberta

Submissions are now closed.

Key Documents:

- Fall 2015 Call for Proposals
- ALI Research Grant Application, Fall 2015
- Guidelines for Grant Applications
- Report Guidelines (2015)

Background

Canada has been active in the development and reporting of natural resource accounts, including accounts for energy resources, timber and minerals. Measures of these forms of “natural capital” have been proposed for use in the assessment of sustainable development, or as indicators of whether regions and countries are on sustainable paths. In essence, these accounts provide information on whether a region of “natural capital” is appreciating or depreciating in stock and/or value.

Natural capital is generally defined as an area’s supply of natural resources and ecosystems that provide flows of goods and services (Sustainable Prosperity, 2014). Some examples of these resources and ecosystems include soil, air, water and forests. These assets are converted into ecosystem goods by humans, such as minerals, fossil fuels, crops, timber, freshwater and alternative energy sources. The assets may also translate into ecosystem services that provide direct benefits to humans, such as pollination that supports crops, recreation, aesthetics and habitat for wildlife viewing. However, these goods and services are often unaccounted for in national wealth accounts and therefore, the entirety of natural capital’s wealth is not fully represented.                  Conversely, a number of conceptual and empirical limitations remain in the construction of natural capital accounts for agriculture, forests, minerals and energy.

To illustrate this, when measuring a country’s wealth, Gross Domestic Product (GDP) is often a prevailing indicator. Unfortunately, GDP only examines income, a single part of economic performance, but not the wealth and assets that underlie this income (World Bank, 2015). An example of this is the fragmentation and conversion of arable farmland to industrial or commercial use. The declining or elimination of ecosystem services provided by arable land (natural capital) are not considered in GDP assessments and are therefore not measured.

It therefore becomes important that agricultural land accounts be developed thoroughly or on par with other natural resource accounts, especially with Alberta’s agriculturally focused landscape and economy. An agricultural land natural capital account could inform a number of important policy issues, including: the impact of conversion of agricultural land to non-agricultural purposes, the role of agricultural land in the provision of market ecosystem services (crops, livestock) and non-market services (recreation, carbon, etc.), and productive capacity in agriculture.

This discussion is very relevant as Canada’s economy is certainly linked to the country’s natural capital.  Furthermore, wealth accounting plays an integral role in assessing economic performance and sustainability. This is especially the case for agriculture in Alberta, where agricultural and agri-food industries contribute approximately $13 billion to Alberta’s GDP and $5.6 billion to Alberta’s exports annually (Government of Alberta, 2014). These valuations do not include other agricultural contributors, such as agri-tourism.

Research Questions

The applicant(s) will be expected to:

  • Assemble a group of experts in the field(s) of economics, agriculture, natural sciences;

  • Develop an exploratory study that would:

    • Provide clarity around the conceptual framework of valuing agricultural land’s natural capital. This would include what determines total wealth from an agricultural land perspective, outlining conceptual and empirical challenges, and defining relevant indicators/metrics that could be used to do so.

    • Determine whether or not an empirical methodology to value agricultural land’s natural capital is feasible. Based on this, the identification of data needs or gaps that would be needed to provide a natural capital account of agricultural land should be included.

    • Lead to the development of a natural capital account for agricultural land in Alberta and potentially other provinces in Canada.

ALI plans to use recommendations provided in the exploratory study to develop future Calls for Proposals or to extend the project contingent on funding.

Project Objectives

  • Development of the key research questions and research design (hypotheses, study design) to compare and contrast environmental, economic and social outcomes of measuring the value of agricultural land accounts.

  • Development of a detailed research plan outlining the process for exploring methodology to measure the value of agricultural land’s natural capital. This should include the identification of a multidisciplinary research team, research sites, resource requirements, research partners/participants and potential funding partners.

Project Period: Call for Proposals in November 30, 2015 with project completion by June 1, 2017.

Proposed Budget: A maximum of $50,000 for the first year (research design phase), and potential additional funding for subsequent years of the study. This future funding is dependent on the results of the design phase and the proposed approach.

It is expected that the selected applicant(s) will work in conjunction with the ALI to coordinate funding application(s) to potential funding partners, in addition to ALI funding, to implement a possible multi-year research program. Please note that funding for future years is contingent upon satisfactory progress reports and financial statements.

Additional Notes: It is expected that this project will involve linkages with the Alberta’s provincial government and the Canadian federal government as well as other governmental and non-governmental organizations. The ALI can assist in helping with the development of such linkages.

References:

Government of Alberta. (2014). Alberta Agriculture and Rural Development: Annual Report 2013-2014.

Sustainable Prosperity. (2014). Policy Brief: The Importance of Natural Capital to Canada’s Economy.

World Bank. (2015). Brief. Natural Capital Accounting. Retrieved from https://www.worldbank.org/en/topic/environment/brief/environmental-economics-natural-capital-accounting.